Robert McLister: Trifecta of bullishness could awaken Canada’s real estate market
All of the above went down in the short span of 75 hours.
Here’s a quick peek at how this trifecta of bullishness could awaken Canada’s real estate market.
Mortgage insurance easing
Out of nowhere, the government decided that Canada’s default insurance market needed stimulation. Starting December 15, for those seeking insured mortgages, the government will allow:
- A 50 per cent increase in the maximum allowable home value (i.e., $1.5 million instead of the $1 million it’s been stuck at since 2012)
- 30-year amortizations for buyers of new builds
- 30-year amortizations for all first-time buyers
The first measure corrects the fact that value limits on insured homes haven’t kept up with the 76 per cent surge in home values since the rule was instituted.
The second measure creates a more liquid pool of buyers for new homes, incentivizing the construction Canada desperately needs.
The third change levels the playing field for first-time buyers who don’t have down payment assistance from their families.
In any case, while one can debate the pros and cons of these policies, what’s undeniable is that the mortgage and real estate industry just hit the jackpot.
Lenders relying on insured securitization to fund prime mortgages are especially grinning, including publicly traded companies First National Financial (TSX: FN) and MCAN Financial (TSX: MKP).
Surprise below-target inflation
Suddenly, the Bank of Canada has more leeway to cut rates without fear of re-invigorating inflation. And that’s precisely what it’ll do, with markets pricing in 200 basis points of rate cuts within 24 months, according to forward rate data from CanDeal DNA.
Such a drop would drastically slash payments, increasing the appeal of home buying relative to renting. It would also trim borrower’s debt-to-income ratios, making mortgage qualifying significantly easier. The resulting additional demand could mop up much of the inventory that’s piled up since 2022.
The Fed’s mega rate cut
Nine out of 10 economists expected the U.S. Federal Reserve to trim rates just 25 bps on Wednesday. Despite the U.S. economy being in “good shape” (the Fed’s words), the central bank instead decided on a supersized 50 bps cut. Clearly, U.S. policymakers worry the economy is more fragile than advertised.
A 50-basis-pointer theoretically lets the Bank of Canada cut more as well, since it doesn’t have to worry about a widening U.S.-Canada rate differential tanking our currency. And both the Bank of Canada and the Fed will expedite rate cuts if they see unemployment accelerate, which I’d put at a better-than-even chance.
Real estate stimulus
Many of us in the housing analysis business thought falling rates would perk up real estate more than they have. But most wanna-be borrowers either can’t pass the government’s stress test or can’t rustle up the minimum down payment.
Moreover, history shows that the early days of rate cuts often fail to spark homebuying. It takes time for incomes to catch up, affordability to return, immigration to add demand, rising unemployment to simmer down, and so on.
This week’s trio of bullish mortgage events should give real estate a shot in the arm by the first quarter or before. As with all policy loosening, though, some buyers will try to jump the gun and beat the crowd — like racing to the buffet before it opens.
Can home values go down before they go up? Theoretically, sure, but the lower prices go, the more opportunity buyers will have when values rebound. The gifts that the real estate market got this week will keep on giving throughout 2025.
Mortgage rates
The rates displayed below are updated by the end of each day and are sourced from the Canadian Mortgage Rate Survey produced by MortgageLogic.news. Postmedia and Imaginative. Online Inc., parent of MortgageLogic.news, are compensated by certain mortgage providers when you click on their links in the charts.